Cobble Hill Nursing Home, Inc. v. Henry and Warren Corp.

• Decision Date: 21 November 1989
• Citation: 548 N.E.2d 203,548 N.Y.S.2d 920,74 N.Y.2d 475
• Parties: , 548 N.E.2d 203, Medicare & Medicaid Guide P 38,334 COBBLE HILL NURSING HOME, INC., Appellant, v. HENRY AND WARREN CORPORATION, Respondent. David Axelrod, as Commissioner of the State of New York Department of Health, Intervenor.
• Court: New York Court of Appeals Court of Appeals

Page 920

548 N.Y.S.2d 920

74 N.Y.2d 475, 548 N.E.2d 203,

Medicare & Medicaid Guide P 38,334

COBBLE HILL NURSING HOME, INC., Appellant, v. HENRY AND WARREN CORPORATION, Respondent David Axelrod, as Commissioner of the State of New York Department of Health, Intervenor.

Court of Appeals of New York.

Nov. 21, 1989.

[74 N.Y.2d 476] Louis A. Craco, Diana B. Simon, New York City, Gregory L. Harris, for appellant.

Joseph Frost, New York City, Alan J. Firestone, Brooklyn, and George Meissner, New York City, for respondent.

[74 N.Y.2d 477] Robert Abrams, Atty. Gen. (R. Scott Greathead, Albany, O. Peter Sherwood, Lawrence S. Kahn and Christopher Keith Hall, New York City, of counsel), for intervenor.

[74 N.Y.2d 478] Edward J. Kuriansky, New York City, Arthur A. Munisteri, Elizabeth T. Bogren and Donald H. Zuckerman for N.Y. State Deputy Atty. Gen., for Medicaid Fraud Control, amicus curiae.

Leslie Salsman and Herbert Semmel, for Alzheimer's Ass'n, New York City Chapter, and others, amici curiae.

OPINION OF THE COURT

KAYE, Judge.

The legal question at the core of this human drama is whether an option permitting plaintiff to purchase a nursing home is so indefinite in its price term as to preclude enforcement by the courts. Contrary to the trial court and the Appellate Division, we conclude that the price term is sufficiently definite, and therefore grant judgment to plaintiff requiring specific performance of the contract.

The agreement at issue arose in connection with the nursing home scandals of the 1970's. Eugene Hollander, then a prominent figure in the industry, had for years been the operator of several nursing homes, until his felony convictions in 1976. He was and remains president of defendant Henry and Warren Corporation, owner of the Brooklyn property plaintiff seeks to purchase; his wife was and remains the corporation's sole shareholder. Prior to his convictions Hollander and his wife leased this property from defendant corporation, and operated the Congress Nursing Home there.

In July 1975 Hollander was indicted by State and Federal Grand Juries for crimes involving unwarranted health and medical care reimbursements. Faced with possible loss of operating certificates and preclusion from the nursing home business, Hollander during plea negotiations asked that the Department of Health appoint receivers who would continue to operate his nursing homes and pay rent to Henry and Warren Corporation. ^* Negotiations ensued for the appointment of plaintiff--a not-for-profit hospital corporation organized by community residents--as receiver for the Congress Nursing Home. Hollander's efforts at similar arrangements for his other nursing homes proved fruitless, as did his litigation to compel appointment of receivers for those facilities.

Talks regarding plaintiff's receivership continued through year-end. At a meeting in December, the Department informed Hollander that the maximum rent payable by a receiver would be calculated pursuant to the Medicaid reimbursement regulations (10 NYCRR part 86), which provided for reimbursement based upon a facility's historical cost. Thus calculated, projected rent for Congress was approximately half the amount defendant was then receiving. The Department refused to reconsider the matter, and indeed advised Hollander that it would take steps to revoke his operating certificates if a receiver was not soon installed.

In May 1976 Hollander entered a plea to the Federal charges and was sentenced to a five-year term of imprisonment (which was suspended), fined $10,000 and placed on probation for five years; a condition of his probation was that he "divest himself of all connections, direct or indirect, with any occupation that requires the custody or care of other people." Hollander had earlier pleaded guilty in State Supreme Court to the felonies of grand larceny in the second degree and offering a false instrument for filing in the first degree, but sentencing on the State charges was postponed because of the ongoing negotiations involving the transfer to plaintiff.

On May 17, 1976, a receivership agreement was signed by plaintiff, defendant, the Hollanders and the Department. On that same date, plaintiff and defendant additionally entered into a lease for the premises, assuring defendant continuing income from the operation of the nursing home, with rent to be "determined * * * by [the Department of Health] pursuant to all applicable statutes, rules and regulations." Both the receivership agreement and the lease--each incorporating the other--contain the following purchase option: "During the Term of the Lease, [plaintiff] shall have an option to purchase the premises (including without limitation the improvements thereon and the items set forth on the Inventory) at any time during said Term at a price determined by the Department in accordance with the Public Health Law and all applicable rules and regulations of the Department without prejudice to the remedies, if any, of the parties herein."

The very day after these agreements were signed--May 18, 1976--Hollander was sentenced to five years' probation conditioned on payment of a fine of $250,000 and $1,000,000 restitution to the State, as well as permanent divestiture of all his nursing home interests. The receivership agreement and lease enabled Hollander to represent to the sentencing court that he was completely out of the nursing home business.

More than three years later, in fall 1979, plaintiff notified the Department that it elected to exercise its option, and asked the Department to set the price. The Department in turn supplied "a computation of the Medicaid allowable transfer price which is the Price as called for by the Receiver Agreement." As the Department explained: "The Medicaid allowable transfer price (as well as Medicaid reimbursement for capital cost) is based upon the original historical cost of a facility as reported to the Department, subject to Departmental review. The original historical cost of a facility is also called the initial allowed facility cost and is defined in 10 NYCRR 86-2.21(a)(6). This cost serves as the basis for a capital cost component in the Medicaid reimbursement rate determined pursuant to 10 NYCRR 86-2.21(e)." The Department determined that as of January 1, 1980, the initial price defined in the purchase option provisions of the agreements was $3,046,352.

Plaintiff exercised the option, and delivered its down payment. Defendant, however, refused stating that it had "no intention of selling the facility in question to Cobble Hill at a price to be established by the Department in accordance with the Public Health Law as it is presently constituted." Defendant objected that the transfer price established by those provisions was "confiscatory," in that it bore "no relation to market value or any other reasonable criteria of true value for this facility." Defendant filed suit in the United States District Court for the Eastern District of New York, alleging due process violations and unjust taking. Those charges were dismissed for failure to state a claim, and the pendent State law claims were dismissed for want of jurisdiction.

Plaintiff meanwhile commenced an action in the State Supreme Court for specific performance of the option; defendant counterclaimed for rescission or adjustment of rent payments to fair market value. Defendant also separately sued the Department and the Commissioner of Health (intervenor on this appeal) challenging the determinations of rent and price as less than fair value. Both State court actions were consolidated into the present suit.

In response to plaintiff's motion for summary judgment, the parties entered into a stipulation. By agreement, Supreme Court awarded plaintiff partial summary judgment and struck defendant's affirmative defenses and the counterclaims except for "financial matters," which were reserved for the court. If the parties could not themselves reach an amicable resolution by June 16, 1986, they were to return to court for a hearing on those matters. In December 1986, at a hearing on the open financial matters, Supreme Court sua sponte vacated the stipulation and proceeded to hear argument on the validity of the option. Defendant at that point contended that the option was void for indefiniteness of the price term, in that no provision of the Public Health Law or the Department's rules and regulations provide a method for fixing the sales price of real property.

Supreme Court dismissed the complaint, finding that the option agreement was unenforceable for failure to specify a method by which price could be determined, and a divided Appellate Division affirmed. The court concluded that the specified law and regulations did not provide an explicit mechanism for determining purchase price, and that the parties had therefore failed to state an essential term, rendering the option unenforceable. The dissenting Justice, by contrast, found an enforceable contract, because the option expressed the parties' intent that the price be fixed by a third party, or because the agreement set forth a practicable method by which price was to be determined, or because the question was foreclosed by the parties' stipulation for partial summary judgment (144 A.D.2d 518, 524-527, 534 N.Y.S.2d 399).

After dismissal for nonfinality of a motion for leave to appeal to this court, Supreme Court granted defendant's application to direct plaintiff to surrender possession of the nursing home--at the time housing more than 500 elderly residents--and denied a cross motion for a stay. We then granted leave to appeal as well as a stay, and now reverse.

Few principles are better settled in the law of contracts than the requirement of definiteness. If an agreement is not reasonably certain in its material terms, there can be no legally enforceable contract ( Martin Delicatessen v. Schumacher, 52 N.Y.2d 105, 109, 436 N.Y.S.2d 247, 417 N.E.2d...